Distractions can be both good and bad, hence the term a “welcomed distraction.” And the past 11 months have brought a plethora of distractions, particularly for those working from home with kids. As I write, I can hear someone wailing about how it’s not fair his younger brother gets to play videogames while he must read. Sorry, I got distracted. Where was I? Yes, distractions.
Our more digitally-connected world creates even more distractions. We surround ourselves with technology and platforms that primarily disrupt our flow of consciousness. Whether it is team chats on “workplace productivity” platforms, group texts with friends who don’t know a put from a call, or doom-scrolling on Twitter to see the latest hot take on the topic du jour, we tell ourselves, ”This is how I can stay connected to the world.” But most of what we engage in is repetitive banter, not the type of welcomed distraction that can reset the brain.
The non-stop GameStop (GME) fascination last week was the latest distraction we had to endure, taking the championship distraction belt away from the Bernie Sanders inauguration meme. While there are some legitimate market structure questions emanating from the GameStop/Reddit event, the mindshare it garnered obfuscated the real issues/trends facing our socioeconomic environment.
While 559 million shares of GME traded over the past week,1 4 million people were diagnosed with COVID-19, 100,000 died,2 variants originating in South Africa and the UK were found in the US,3 two more vaccines may now be available by March, 31 million people got vaccinated,4 it was revealed the US economy grew by 4.2% versus an estimated 4%,5 hopes for an immediate $1.9 trillion stimulus were dashed,6 and $3 trillion of market capitalization was wiped off the global equity markets.7
Understanding those trends and how they will impact the market, the economy, and our day-to-day lives is far more important than if someone has paper or diamond hands8 when it comes to how they trade a retail videogame shop. Yet the distractions will continue, as our society is now accustomed to the 30-second soundbite rather than the 30-page analysis that would offer more detail and lasting insight.
Blocking out unnecessary distractions is going to be important no matter what happens next. Focusing on what matters and structuring portfolios to navigate a market that over the next 12 months will continue to be fundamentally challenged by a confluence of macro risks – none of which are related to the last week of January – will be crucial to climbing out of the worst crisis in a generation. Overall, the recovery will continue to have its ups and downs, and investors should be aware of how cyclical assets may benefit if an effective vaccination program spurs broad-based growth and the stimulus continues to work its way through the real economy.
Cyclicals in focus
Even with markets declining, positioning continues to indicate a cyclical view from investors – signaling a bit more long-termism and macro focus than the gamification GameStop fueled headlines would lead you to believe.
Flows into cyclical, expansionary US sector exposures were positive once again this month and continue the trend they have been on since the dual headwinds of the vaccine timeline and election uncertainty were removed. Financials had $5.8 billion in inflows, followed by Energy’s $1.3 billion and roughly $1 billion each in Materials and Industrials.